Worcester County's CEOs making good bank

Sunday

Apr 20, 2014 at 6:00 AM

By Peter S. Cohan WALL & MAIN

Worcester County is headquarters to 13 publicly traded companies, and their CEOs are bringing in the big bucks. What's interesting is to look at which ones are generating a good return for their investors, and which ones are feeding at the trough while leaving their shareholders in the Dumpster.

The average statistics for these public companies mask wide variations among them. For example, the average Worcester County public company chief executive officer pulled in $1,235,769 for the most recently completed year available on the Securities and Exchange Commission's website — 14 percent more than the previous year.

For that, the sample exec presided over a company with an average of $628 million in revenue and net income of $62 million. The average company increased sales by 5 percent and net income by 53 percent. That yielded an average profit margin of about 10 percent. Moreover, the average Worcester County public company CEO oversaw a 31 percent increase in its stock price between April 16, 2013 and April 16, 2014.

The two best performing stocks of the sample in the last 12 months were a pair of very small companies. Sevcon, a Southboro electronic controls maker, enjoyed a 212 percent jump in its stock price. During that time, its revenues fell 11 percent to $32 million and it lost $1 million. Meanwhile, its chief exec, Matthew Boyle, took in $304,742 — a mere 0.95 percent of its revenue. The second-best performing stock was Fitchburg medical device maker Arrhythmia Research, whose stock rose 94 percent. During that time, its revenues were flat at $21 million and it lost $4 million. Meanwhile, its chief exec, Salvatore Emma Jr., took in $216,872 — 1.03 percent of its revenue.

The two worst performing stocks were also small companies. Worcester-based ThermoEnergy, a waste management firm with 24 employees, suffered a 69 percent plunge in its stock price. During the last year, its revenues tumbled 57 percent to $3 million while it lost $2 million. Its CEO, Cary G. Bullock, took in $263,549 — 8.78 percent of revenues. Devens-based wind technology firm AMSC suffered a 43 percent plunge in its stock price. While its revenue rose 13 percent to $87 million, it lost $66 million — more money than any other company of the 13. Its CEO, Daniel McGahn, hauled in $2,831,566 — 3.25 percent of its revenue — and making him the second-highest paid chief executive in the county.

While I found these numbers interesting, what is disconcerting is that Worcester County only hosts two companies with more than $1 billion in revenues: The Hanover Group and Waters Corp.

Worcester insurer The Hanover Group, had $4.8 billion in revenue, up 4 percent in the last year and net income of $251 million, up a hefty 348 percent from the year before. Hanover CEO Frederick Eppinger took in $5,237,208 in 2013 — a 25 percent increase over the year before. He was the highest-paid public company CEO in the county — representing a mere 0.11 percent of revenue — but his shareholders enjoyed a nice 22 percent boost in wealth over the year.

The second big company in the county is Milford instrument maker Waters Corp., which generated $1.9 billion in revenue, up 5 percent from the year before. Its net income fell slightly to $450 million, but at 23.6 percent, it had the second-highest net profit margin of any company in Worcester County. CEO Douglas A. Berthiaume did not do so well — his pay fell 15 percent to $898,974, even as shareholders enjoyed a hefty 19 percent increase in wealth.

To find the best-paid CEO in Worcester County, you have to drive south to Oxford. That's where fiber laser maker IPG Photonics is based. Chief Executive Officer Valentin P. Gapontsev oversaw 15 percent revenue growth in 2013 and generated an impressive 24.1 percent net margin coupled with a 15 percent increase in shareholder value. While the CEO enjoyed a 17 percent pay increase to $999,819 — representing a mere 0.15 percent of sales — the real payoff comes in trusts that own a big chunk of the company's shares. Forbes estimated the CEO and family's net worth at $1.3 billion in March 2013.

The stock market is a strange beast and so are the factors that allow some company CEOs to get paid enormous sums as they destroy huge chunks of shareholder value. I do not understand why some of Worcester County's smaller and weaker-performing operating companies generated some of the biggest shareholder returns over the last year. Fortunately, the CEOs who presided over that increase did not receive exorbitant pay packages. Moreover, I think that Hanover Group — while paying its CEO far more than others in the county — at least had the decency to preside over a hefty increase in profitability and a respectable increase in shareholder value as he led Worcester's biggest public company.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy at Babson College. His email address is peter@petercohan.com.

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